Canberra Needs Eyes Wide Open

16 June 2017

This opinion article by Brendan Lyon and Jennifer Westacott was published in The Australian on 16 June 2017.

Sydney is getting its long-overdue second airport and that is very good news for western Sydney — and the whole country. The federal government and the responsible minister Paul Fletcher deserve credit for pressing the ‘‘go’’ button on an airport that’s been paused since the 1980s.

In choosing to build and operate the airport itself, Canberra will need to overturn recent history and demonstrate that it can deliver major projects as well as the private sector. The recent track record suggests considerable room for improvement.

The NBN could now cost well over $50 billion — and it’s not even half-done; pink batts were the subject of a royal commission; and defence projects have an unrivalled heritage of magnificent cost overruns and project failures.

Airport projects are much more complex than a strip of concrete for planes to land on. It’s been 47 years since the federal government’s last airport, meaning Canberra is exposing itself to unusual risks. The last time it opened an airport, John Gorton was prime minister and the Snowy Mountains Hydroelectric Scheme (Snowy 1.0) was still four years from being finished.

In the intervening four decades, governments have largely moved away from directly owning, designing and operating complex assets like airports. This has been deliberate, not an accident.

Instead, both major parties routinely used public-private partnerships and other mechanisms to get the taxpayer out of the hot seat, having learnt the hard way that government delivery usually sees projects take much longer and be more costly.

Australian studies find that government-procured major projects routinely cost about 30 per cent more than privately financed ones. That’s because privately financed project delivery models see a competition to provide the best asset at the least cost. Investors, not taxpayers, bear the risk.

These same incentives don’t exist in traditional direct government procurement, where taxpayers pick up the tab.

The commonwealth needs to be very awake to the many complex engineering, construction, design, operational, revenue and other business risks it’s taking on, and will need outstanding performance from the corporation it is creating to deliver the airport.

That will cost real money; the commonwealth will need to pay commercial rates to attract the best commercial skills into the public airport delivery company.

Highly skilled personnel will be needed to manage complex risks for everything from the design of the runway and aprons, the construction of pipelines to get fuel to the facility, right through to hi-tech systems to manage aircraft movements. Skilled personnel will be needed to do the commercial design of the passenger and freight terminals, which will dictate the cost and future value of the airport.

Protecting taxpayers will require good models to synthesise commercial disciplines. The government should sell the airport as soon as possible, to make sure it is operationally efficient and to avoid government being aviation regulator and investor.

The airport will also need the NSW and local governments not just involved but in lockstep. While Canberra controls everything inside the airport perimeter, it has no power over land-use planning, transport systems or other matters outside the fence.

Perhaps most of all, the airport company needs a board of deeply experienced and properly independent directors, with the strength to focus on commercial, not political, realities.

The Western Sydney Airport can be a great outcome for the country, but only if the federal government has its eyes wide open to the realities, risks and costs of major project delivery.

Brendan Lyon is the chief executive of Infrastructure Partnerships Australia.

Jennifer Westacott is the chief executive of the Business Council of Australia.